Mr. Nidhi Rekhan vs M/S Samyak Projects Private Limited

Page 1 of 21 20.10.2020 in CP(IB) No. 784(ND)/2020 (in short the „Impugned

Order‟) passed by the Adjudicating Authority (National Company

Law Tribunal, New Delhi).

2. The facts of the appeal in brief, as stated and argued by the

Appellant, is that the Corporate Debtor M/s Samyak Projects Pvt.

Ltd. accepted Rs. 1,00,00,000 (Rupees one crore only) as

investment from Mrs. Nidhi Rekhan, the purported financial

creditor, and allotted flat Nos. A-1201 on 12thfloor and E-1301 on

the 13th floor, total area admeasuring 4476 sq. ft. in project "Ansal

Heights 86" in Sector 86, Gurugram after executing an agreement

dated 20.7.2016 (hereafter called "Agreement").The Corporate

Debtor promised to pay the Mrs. Nidhi Rekhan an assured return

@ 24% per annum on the amount deposited as „down payment‟ by

the financial creditor vide two cheques - one cheque bearing

number 000031 for a sum of Rs. 50 lakhs dated 20.07.2016 and

another cheque number 000032 for Rs.50 lakhs dated 20.07.2016

- against allotment of the said flats. It is claimed by the Appellant

that the Corporate Debtor issued letter dated 15.6.2019, wherein it

stated that it shall continue to pay assured returns, as per

Agreement dated 20.07.2016 even after the surrender of the flats

until the final repayment of the principal amount as well as the

Company Appeal (AT) (Ins) No. 1035 of 2020

Page 2 of 21 assured returns has been made. It is claimed by the Appellant that

it surrendered the booking of the said flats to the Corporate Debtor

which was accepted and an amount comprising of the deposited

principal amount of Rs.1 Crore and assured returns were to be

refunded to the financial creditor. Consequently, the financial

creditor issued forty cheques dated 20.11.2018 to 31.1.2020 for

amounts detailed at pp.39 - 64 of the Appeal Paperbook. The

Appellant has thus claimed that a total amount of admitted debt of

Rs.2,19,56,000/- (Rupees Two Crores Nineteen Lakhs and Fifty Six

Thousand only) is due from the corporate debtor and in default as

on 10th February 2020. The Appellant filed petition under section 7

of the IBC seeking initiation of insolvency proceedings against the

Corporate Debtor on 16.3.2020, which was dismissed vide

impugned order dated 20.10.2020.

3. We heard the arguments of both the parties and perused the

record.

4. In the arguments, the Learned Counsel for Appellant has

claimed that the Learned Adjudication Authority has dismissed the

section 7 application holding that the Appellant (applicant in

section 7 application) is not a „financial creditor‟ under section 5(7)

Company Appeal (AT) (Ins) No. 1035 of 2020

Page 3 of 21 of the IBC and the amount, which the applicant has invested with

the Corporate Debtor is not „financial debt‟ under section 5(8) of

the IBC and that the default in payment on the basis of settlement

agreement is not a default of the financial debt.

5. The Learned Counsel for Appellant has further argued that

vide an agreement dated 20th July 2016the Appellant had booked

two flats bearing Nos.A-1201 and E - 1301 in project "Ansal

Heights 86" by giving a down payment of Rs. 1,00,00,000/- against

a total cost of the flats which is Rs. 1,11,90,000 and the remaining

balance consideration of Rs.11,90,000 was to be paid by the

allottee Nidhi Rekhan or her nominee to the Corporate Debtor at

the time of the handing over possession of the allotted flats

complete in all respects, and upon signing and registration of the

sale deeds of the said flats in favour of the allottee or her nominee

and an assured return of 24% per annum on the amount paid as

down payment by the allottee. He has added that the said flats

were surrendered by the Appellant to the Corporate Debtor and in

accordance with the Agreement, the allottee is entitled to refund of

principal amount and assured return from the Corporate Debtor.

The Learned Counsel for Appellant has further argued that even

though the flats have not been given to the Appellant the amount

Company Appeal (AT) (Ins) No. 1035 of 2020

Page 4 of 21 of Rs. 1 crore is still with the Corporate Debtor. He has referred to

the letter of Corporate Debtor(attached at pp. 67 - 68 of Appeal

Paper Book) to claim that the Corporate Debtor has agreed that the

surrender of flats will not stop the assured returns as per the

agreement dated 20.7. 2016 and the corrigendum agreement dated

6.9. 2017 and 31 7.2018 in respect of the said flats and therefore,

his amount deposited with the Corporate Debtor is earning

assured return and in such a situation the principal amount is a

financial debt and the Appellant is a financial creditor under the

definitions in IBC.

6. The Learned Counsel for Appellant has referred to the

judgment of NCLAT in the case Nikhil Mehta & Sons vs AMR

Infrastructure Ltd. [Company Appeal (AT)(Ins) No. 07 of 2017]

wherein it is held that there are two important ingredients for a

debt to be categorized as a financial debt, which are (i) the debt

should be disbursed against the consideration of time value of

money; and (ii) the debt should arise from a transaction having the

commercial effect of borrowing and moreover Section 5(8)(f) states

that "any amount raised from an allottee under a real estate project

shall be deemed to be an amount having the commercial effect of

borrowing" to claim that since both the said ingredients are

Company Appeal (AT) (Ins) No. 1035 of 2020

Page 5 of 21 present in the instant case, and the money was raised from an

allottee, the money deposited by the Appellant should be

categorized as financial debt. The Ld. Counsel for Appellant has

also referred to the judgment of Hon‟ble Supreme Court in M/s

Orator Marketing Pvt. Ltd. vs M/s Samtex Desinz Pvt. Ltd.

[Civil Appeal No. 2231 of 2021] in this regard to claim that the

amount deposited by the Appellant with the Corporate Debtor is a

financial debt.

7. The Learned Senior Counsel for the Respondent/Corporate

Debtor has claimed that the Section 7 application filed by the

Appellant does not contain any date of default; hence such an

application is not maintainable. He has also claimed that the

amount deposited by the Appellant was refunded through cheques

given by the Corporate Debtor in refund were not realized and

hence the debt does not materialize. Moreover, pointing to the

agreement dated 20.7.2016, he has claimed that the purported

Financial Creditor/Appellant is only a speculative investor and

therefore she cannot enjoy the status of the financial creditor. Ld.

Counsel of Respondent has also referred to the judgment of

Hon‟ble Supreme Court in Anuj Jain Interim Resolution

Professional for Jaypee Infratech Ltd. vs Axis Bank Ltd. and

Company Appeal (AT) (Ins) No. 1035 of 2020

Page 6 of 21 Ors [(2020) 8 SCC 401] wherein it is held that ".....what is

intended by the expression "financial creditor" is a person who has

direct engagement in the functioning of the corporate debtor ; who is

involved right from the beginning while assessing the viability of the

corporate debtor; who would engage in restructuring of the loan as

well as in reorganization of corporate debtor's business when there

is financial stress."He has also claimed that the transaction is

„undervalued‟ as the interest rate @ 24% per annum which is an

unusually high rate of interest. Therefore, the judgment held that

the Appellant may be a creditor, but is certainly not a financial

creditor. He has further referred to the judgment of Hon‟ble

Supreme Court in Mansi Brar vs Sudha Sharma and Anr. [Civil

Appeal No. 3826/2020] and of this Tribunal in the matter of

Sudha Sharma vs Mansi Brar and Anr. [Company Appeal (AT)

(INS) No. 83 of 2020] to emphasize that a speculative investor is

not a person who is genuinely interested in possessing the housing

units/apartments and therefore cannot be termed as an allottee as

per explanation attached to clause (f) of section 5(8) of the IBC

and, hence will not be considered a financial creditor. He has

further referred to paragraphs 38 and 41 of NCLAT‟s judgment in

Sudha Sharma vs Mansi Brar (supra) to emphasise that money

deposited/invested for speculative purpose does not entitle a

Company Appeal (AT) (Ins) No. 1035 of 2020

Page 7 of 21 person to take advantage of clause (f) of section 5(8) and be

considered a financial creditor by virtue of being an allottee of a

housing unit/flat.

8. Furthermore, the Ld. Counsel for Respondent has also

referred to the judgment of NCLAT in the case of Ankit Goyat vs.

Sunita Agarwal [Company Appeal (AT)(INS) No. 1020/2019]

wherein it is held that in a situation where the allottee seeks to

benefit from a "lucrative agreement" when he is "securing" his

money by way of the agreement which gives him a lien over the

flat/s, he cannot be considered a financial creditor but is a

speculative investor who cannot be given benefit as a financial

creditor under section 5(8)(f) of the IBC.

9. Before moving further, we introduce some definitions, which

are relevant for this appeal:

"Section 3. Definitions. -

(11) "debt" means a liability or obligation in respect of a

claim which is due from any person and includes a

financial debt and operational debt.

Xxx xxxxxx

Company Appeal (AT) (Ins) No. 1035 of 2020

Page 8 of 21 Section 5

(7) "financial creditor" means any person to whom a

financial debt is owed and includes a person to whom

such debt has been legally assigned or transferred to.

(8) "financial debt" means a debt along with interest, if

any, which is disbursed against the consideration for

the time value of money and includes -

(a) money borrowed against the payment of interest;

(b) any amount raised by acceptance under any

acceptance credit facility or its de-materialised

equivalent;

(c) any amount raised pursuant to any note purchase

facility or the issue of bonds, notes, debentures, loan

stock or any similar instrument;

(d) the amount of any liability in respect of any lease or

hire purchase contract which is deemed as a finance or

capital lease under the Indian Accounting Standards or

such other accounting standards as may be prescribed;

(e)receivables sold or is counted other than any

receivables sold on non-recourse basis;

(f) any amount raised under any other transaction,

Company Appeal (AT) (Ins) No. 1035 of 2020

Page 9 of 21 including any forward sale or purchase agreement,

having the commercial effect of a borrowing.

Explanation. - for the purposes of this sub-clause, -

(i) Any amount raised from an allottee under a real

estate project shall be deemed to be an amount

having the commercial effect of a borrowing; and

(ii) The expressions, "allottee" and "real estate

project" shall have the meanings respectively

assigned to them in clauses (d),(zn) of section 2 of

the Real Estate (Regulation and Development)

Act, 2016 (16 of 2016).

10. The relevant clauses in the Agreement dated 20.7.2016

entered between the Corporate Debtor M/s. Samyak Projects

Private Limited and Ms. Nidhi Rekhan (attached at pp. 33-36 of

Appeal paperbook) which are relevant for our discussion are

reproduced below:-

"(3) That the Allottee has opted down payment plan and the

Allottee has paid to the FIRST PARTY a sum of Rs.

1,00,00,000/- each dated 20.07.2016 and drawn on Bank of

Baroda which represents about 89% (Eighty Nine Percent)

Company Appeal (AT) (Ins) No. 1035 of 2020

Page 10 of 21 price of the Allotted Flats/Units and the receipt of which is

admitted and acknowledged by the FIRST PARTY.

(4) That the remaining balance consideration of Rs.

11,90,000/- (Rupees Eleven Lacs Ninety Thousand only) with

other charges, if any, shall be paid by the Allottee or their

nominee(s) to the FIRST PARTY at the time of handing over

possession of the Allotted Flats/Units complete in all respects,

by the FIRST PARTY and upon signing and registration of sale

deed(s) and/or title documents in favour of the Allottee or their

nominee (s) of the said Unit/Flat.

(5) Since the Allottee has opted for DOWN PAYMENT PLAN,

the FIRST PARTY hereby agrees and assures and undertakes

to pay to the Allottee an assured return of 24% (twenty four

percent) per annum on the amount paid by the Allottee. The

assured return shall be paid annually commencing from the

execution of this Agreement and the Allottee shall be entitled

to the same till the termination of this Agreement.

(6) That the Allottee has made it clear to FIRST PARTY and

FIRST PARTY hereby agrees, that the Allottee shall after

Company Appeal (AT) (Ins) No. 1035 of 2020

Page 11 of 21 obtaining written consent of FIRST PARTY, be fully entitled to

assign their Allotted Flats/Units or any part thereof in favour

of any of their nominee(s)/purchasers at any consideration

and FIRST PARTY and the Developer, upon receiving written

intimation from the Allottee to that effect, will be obliged to

register such Units/Flats as may be desired by the Allottee in

the name of their nominated nominee without charging any

transfer charges. However, the nominee (s) of the Allottee

shall be under obligation to sign and execute the necessary

documents/papers in respect of the said Flats/Units which

would be registered in their name, PROVIDED ALWAYS it is

agreed to by the Allottee that he/it shall not assign or transfer

its rights in the Allotted Flats/Units or any part thereof in

favour of any third person or in favour of its nominee(s) before

the expiry of one year period from the date hereof.

(7) Notwithstanding anything contained herein it is

specifically agreed to between the parties that after a period

of one year from the date hereof, the Allottee or FIRST PARTY

without assigning any reason, in its absolute discretion, is

fully entitled to cancel or rescind the Allotment of the

Flats/Units herein booked. Once the Allottee exercises its/his

Company Appeal (AT) (Ins) No. 1035 of 2020

Page 12 of 21 option to cancel the booking after the specified period of one

year, the Allottee shall send written intimation to FIRST

PARTY upon receipt of which the FIRST PARTY shall forthwith

refund the entire amount of consideration herein paid together

with any outstanding amount of assured return accrued till

the date of refund. Similarly, in the event, FIRST PARTY

decides to cancel this arrangement/allotment, it shall be at

liberty to do so by refunding the money received from the

Allottee forthwith together with any outstanding amount of

assured return accrued till the date of refund. Upon receipt of

the refund from FIRST PARTY in the manner stated herein, the

Allottee shall be left with no interest or claim or lien on the

Allotted Flats/Units or any part thereof and FIRST PARTY

shall be free to deal in the same in any manner in its

discretion and the Allottee undertakes to execute any

documents/papers in favour of FIRST PARTY or its nominee in

order to surrender his/her/their claim/lien from the said

allotted Flats/Units.

11. The Ld. Counsel for Appellant has referred to Pioneer Urban

Land & Infrastructure Ltd. & Anr. Vs. Union of India &Ors

[(2019) SCC Online SC 1005] Hon‟ble Supreme Court has held as

Company Appeal (AT) (Ins) No. 1035 of 2020

Page 13 of 21 follows:-

"50. It can thus be seen that just as information utilities provide the kind of information as to default that banks and financial institutions are provided under Sections 214 to 216 of the Code read with Regulations 25 and 27 of the Insolvency and Bankruptcy Board of India (Information Utilities) Regulations, 2017, allottees of real estate projects can come armed with the same kind of information, this time provided by the promoter or real estate developer itself, on the basis of which, prima facie at least, a "default" relating to amounts due and payable to the allottee is made out in an application under Section 7 of the Code. We may mention here that once this prima facie case is made out, the burden shifts on the promoter/real estate developer to point out in their reply and in the hearing before the NCLT, that the allottee is himself a defaulter and would, therefore, on a reading of the agreement and the applicable RERA Rules and Regulations, not be entitled to any relief including payment of compensation and/or refund, entailing a dismissal of the said application. At this stage also, it is important to point out, in answer to the arguments made by the Petitioners, that under Section 65 of the Code, the real estate developer can also point out that the insolvency resolution process under the Code has been invoked fraudulently, with malicious intent, or for any purpose other than the resolution of insolvency. This the real estate developer may do by pointing out, for example, that the allottee who has knocked at the doors of the NCLT is a speculative investor and not a person who is genuinely

Company Appeal (AT) (Ins) No. 1035 of 2020

Page 14 of 21 interested in purchasing a flat/apartment. They can also point out that in a real estate market which is falling, the allottee does not, in fact, want to go ahead with its obligation to take possession of the flat/apartment under RERA, but wants to jump ship and really get back, by way of this coercive measure, monies already paid by it. Given the above, it is clear that it is very difficult to accede to the Petitioners' contention that a wholly one sided and futile hearing will take place before the NCLT by trigger-happy allottees who would be able to ignite the process of removal of the management of the real estate project and/or lead the corporate debtor to its death."

12. We, therefore, now examine the various clauses of the

Agreement entered between the Corporate Debtor Samyak Projects

Private Limited and Mrs. Nidhi Rekhan who purports to be an

allottee. The above-mentioned clauses 3, 4, 5 and 6 of the

Agreement are primarily concerned with the "Down Payment" and

an assured rate of return of 24% p.a. and the right of the First

Party/Mrs. Nidhi Rekhan, to assign the flat to any of her

nominees. Clause 7 is about the right of the allottee to cancel the

booking after the specified period of one year. There is no clause

in the agreement which relates to the construction/completion of

the flats, the time stipulated for completion of construction, any

penalty to be imposed on the developer/builder for delaying

Company Appeal (AT) (Ins) No. 1035 of 2020

Page 15 of 21 construction and other such provisions that are pertinent and

germane to a housing development project and which are

necessary for protecting the interest of the allottee. All such

provisions are usual and necessary elements of a Builder-Buyer

Agreement. We find from the said agreement that there is a "Down

Payment" of Rs. 1 Crore with remaining balance of Rs. 11,90,000/-

(Rupees Eleven Lakhs Ninety Thousand only) and an assured rate

of return @ 24% per annum. In addition, the allottee is given the

right, in its absolute discretion, to cancel or rescind the allotment

of the flats/units booked through the agreement. The assured rate

of return of 24% per annum is a very high rate of interest that a

builder would not offer to an allottee even when she is making

down payment. The Agreement in this case does not, therefore,

have the necessary elements of a Builder-Buyer agreement. On

the contrary, it is an agreement which is more in the nature of

detailing and protecting an investment made by Mrs. Nidhi

Rekhan, who is coming in the garb of an allottee. As has been

held by this tribunal in the matter of Sudha Sharma versus Mansi

Brar & Anr. [Company Appeal (AT) (INS) No. 83 of 2020] and the

subsequent order of Hon‟ble Supreme Court in Mansi Brar

Fernandes versus Sudha Sharma and Anr. [Civil Appeal No.

3826/2020] which affirms the order of this Tribunal in Company

Company Appeal (AT) (Ins) No. 1035 of 2020

Page 16 of 21 Appeal (AT) (INS) No. 83 of 2020, we find that the purported

allottee Mrs. Nidhi Rekhan, is actually a speculative investor

earning a high rate of interest on her investment and is by no

means interested in the construction, completion and possession

of the said flats no. A-1201 and E-1301. Therefore, we have no

hesitation in holding that Mrs. Nidhi Rekhan/Appellant cannot

claim to be a „financial creditor‟ as defined under explanation (i) of

section 5(8)(f) of the IBC. The facts in the matter of Pioneer Urban

Land and Infrastructure (supra)support the facts of this case as

in this case the Appellant is not a genuine allottee but an investor

who has come as allottee with no intention of possessing the flats. The Ld. Counsel for Appellant has also referred to Pioneer Urban

Land and Infrastructure (supra), particularly paragraph 67

wherein it is held that "...The expression "borrow" is wide enough

to include an advance given by the home buyers to a real estate

developer for "temporary use" i.e. for use in construction project so

long as it is intended by the agreement to give "something

equivalent" to money back to the home buyers." It is noted by us

that the Appellant in the instant case is not a genuine home buyer

but someone who has invested a certain amount but is coming

before us as a home buyer. We distinguish the above observation

made in the Pioneer Urban Land and Infrastructure (supra)

Company Appeal (AT) (Ins) No. 1035 of 2020

Page 17 of 21 judgment as the Appellant is not a genuine home buyer and hence

he cannot claim benefit as an "allottee" in a real estate project and

hence will not be considered a financial creditor by taking recourse

to Explanation (i) of section 5(8)(f) of the IBC.

13. The Ld. Counsel for Appellant has also cited the judgment of

this tribunal in Ashok Agarwal vs Amitex Polymers Pvt. Ltd.

[Company Appeal (AT(INS) no. 608 of 2020] in support of his

claim that she is a financial creditor. We find that in this

judgment the NCLAT has merely classified financial and

operational creditors as all belonging to the category of "creditors"

and hence there is nothing specific in this judgment regarding

speculative investors coming in as home buyers and yet getting the

benefit of financial creditor.

14. Moreover, in the present case, where an unduly high rate of

interest of 24% p.a. on the deposited amount has been assured by

the Corporate Debtor, coupled with the fact that after one year of

booking the flats the first party (the allottee) can cancel or rescind

the agreement and take back refund along with assured interest,

the depositor cannot be considered a person who is genuinely

interested in purchasing of flats/apartments and can therefore get

Company Appeal (AT) (Ins) No. 1035 of 2020

Page 18 of 21 the status of financial creditor being an allottee in accordance with

Explanation (i) of section 5(8) of IBC We are of the view that the

status of Financial Creditor cannot be provided to a person who, in

the garb of an allottee comes in the project as a speculative

investor and for no reason cancels the allotment, which is the case

in the present appeal. Therefore, the benefit of section 5(8)(f) of

IBC will not enure in her favour. We are of the view that the facts

in the matter of Mansi Brar Fernandes versus Sudha Sharma

and Anr. (supra) are akin to the facts of the instant case and

therefore the related order squarely applies to this case.

15. In the matter of Anuj Jain Interim Resolution Professional

for Jaypee Infratech Limited versus Axis Bank Limited and

Ors. (2020 8 SCC 401), Hon‟ble Supreme Court has held as

follows :-

"42.3 The enunciation aforementioned illuminates the reasons as to why at all a financial creditor is conferred with a major, rather pivotal, role in the processes contemplated by Part II of the Code. It is the financial creditor who lends finance on a term loan or for working capital that enables the corporate debtor to set up and/or operate its business; and who has specified repayment schedules with default consequences. The most important feature, as this Court has said, is that a financial creditor is, from the very beginning, involved in assessing the viability of the corporate debtor who Company Appeal (AT) (Ins) No. 1035 of 2020

Page 19 of 21 can, and indeed, engage in restructuring of the loan as well as reorganization of the corporate debtor's business when there is financial stress. Hence, a financial creditor is not only about in terrorem clauses for repayment of dues; it has the unique parental and nursing roles too. In short, the financial creditor is the one whose stakes are intrinsically interwoven with the well-being of the corporate debtor."

16. We find that in the Agreement dated 20th July 2016 that the

Appellant is relying on, there are no specified repayment schedules

or consequences in the event of default. The assurance mentioned

by the Appellant, and also claimed in the Corporate Debtor‟s letter

dated 15.06.2019 are not in the nature of consequences in the

event of default in payment of debt. It is also noted by us is that

this letter dated 15.6.2019 was issued almost three years after the

original Agreement dated 20.7.2016 was executed, and is certainly

part of the agreement. We also find that neither there is a date of

default in the section 7 application, nor any repayment schedule

has been outlined in the said agreement. We therefore, are

constrained to view the agreement not as an agreement between a

homebuyer and builder, but relating to an investment made by the

Appellant. The judgment in Anuj Jain (supra) supports such a

conclusion. Therefore, we are of the clear view that the Appellant

cannot claim the status and benefits as a financial creditor by

Company Appeal (AT) (Ins) No. 1035 of 2020

Page 20 of 21 virtue of being an allottee/homebuyer under explanation (i) to

section 5 (8)(f) of the IBC.

17. Thus, in our clear opinion, the Appellant, who is a

speculative investor, cannot claim status and benefits as financial

creditor under Explanation (i) of Section 5(8)(f) of the IBC, and is

not interested in the financial well-being, growth and vitality of the

Corporate Debtor, but is just interested in her investment and has

come in the garb of an allottee. In such a situation, the Appellant

is certainly not a financial creditor holding financial debt, which is

in default of payment by the Corporate Debtor, and consequently

we conclude that the Impugned Order does not require any

interference. The appeal is, therefore, dismissed. There is no

order as to costs.

(Justice Ashok Bhushan) Chairperson

(Dr. Alok Srivastava) Member (Technical) New Delhi 31st January, 2022.

/aks/

Company Appeal (AT) (Ins) No. 1035 of 2020

Page 21 of 21